What are your thoughts about covered calls ETFs and other similar funds such as QYLD, XYLD, JEPI, NUSI etc? Do they have a place in a mustachian portfolio?
Covered calls generally as a strategby underperform the market. So an ETF that holds an asset that generally underperforms the market, and then takes fees off the top, doesn't sound very attractive to me. That is, to me, as a general concept. If I liked the idea of the ETF, I would just run covered calls myself. It isn't that much work, more tax efficient, and not hard, thus "paying" myself the 0.6% expense fee.
I'm not sure what the ETFs could provide me that I can't provide myself.
-Taxation is pretty complicated and I'm still trying to figure it out.
Beyond the above, the biggest reason I haven't dove further into these ETFs. The tax consequences are massively different than a long term buy and hold.
I have zero bonds and don't really see that allocation changing any time soon.
Beyond creating a better risk adjusted return over time, Portfolio Margin is a large reason to hold bonds. Most bonds (VGSH, TLT) have very little (if any) reduction in buying power on your account. Which means you can buy bonds and still use your buying power to do other transactions (I do mostly options, but your flavor may vary). By having the bonds it protects you against large corrections while increasing overall returns.
Until rates improve, I don't see much reason to buy bonds at all.
When are the rates good enough?
Bond rates are priced to persuade investors away from other investments, like equities. If the market is struggling (as it is lately) bonds don't need to attract capital, and offer low (but stable) returns, like you're seeing now. You may likely get better returns by putting it into equities. When equities start taking off and trending higher (last bull market), bonds will increase rates, but not enough to offset the increase in equities. But equities are on fire at that point. So bonds might be offering 2% or 3%, but is that enough to attract you to change your tune when equities are returning 11% or 15%? I doubt you'd choose a 10% haircut when equities are on fire if you won't take a 4% haircut when equities are flat.
But the kicker is that bond rates are a reaction to equities. Which means bonds will be offering higher (than today) rates RIGHT BEFORE the market drops off. So who knows when the right time to own bonds is? Choosing when is like timing the market. Not really possible.
But of course, having some allocation to bonds has provided a more consistent and stable income stream, at reduced risk levels, for almost every year since bonds and equities have existed. Even if you don't like the return of bonds, if you don't want to go back to working for someone else you need to (1) create enough income to pay your expenses, and (2) make sure that income stream can last in up, down, or sideways markets. And bonds to one extent or another, like it or not, help considerably with both of those.
And this might be the biggest reason... having monthly income from QYLD honestly gets me a step closer to partial FIRE, at least psychologically.
But does it return a better RISK ADJUSTED return than some of the more stable portfolios? Sure, you might get 11% dividends (at horrible tax treatment), but is it backtested and stable enough to outcompete the 5% safe withdrawal rate of a Golden Butterfly [or insert your own choice] portfolio?
After a year or so, I will do a back test analysis to see how much I've lost (or made) by buying QYLD vs. VTSAX and that will likely influence how I move on from here.
From what I've seen from others that have owned it for 1-3 years, they've generally been dissatisfied with their choice at the end. But YMMV.
